by Lynda Kiernan

Australia’s Blue Sky Alternative Investments has begun its dismantling process after being placed in receivership this May after breaching a covenant connected to a $50 million loan facility from Oaktree Capital Management.

Following the completion of a review conducted by KordaMentha, the party appointed by Oaktree as receivers and managers of Blue Sky, the initial step being taken is the transfer of Blue  Sky’s real asset water and agriculture funds to a subsidiary of funds being managed by Oaktree.

Once done, the subsidiary will begin to work with Argyle Capital Partners, a new entity in which Kin Morrison, a head Blue Sky executive is a majority owner. Through Argyle Capital, Morrison and the Argyle team will oversee the transferred real asset business operations.

“Subsequent phases of the restructuring will involve the transition of certain assets and subsidiaries from Blue Sky to [Oaktree’s subsidiary], and, in some cases, will involve partnerships with key existing management,” stated KordaMentha in an announcement to Blue Sky investors, reports AFR. 

The break up also will necessitate cutting Blue Sky’s staff, which at its height numbered more than 100 people, however, the exact extent of the cuts is yet to be determined. And investors have been warned to hold no expectations from the restructuring of the company, which was at one time valued at more than $1 billion, with $101 million in non-tangible assets, but now, as of May, stands at a market capitalization of $14 million.

Troubles for Blue Sky have been building over time, and it is believed that the restructuring process could too take months or even years.

At the end of September 2018, U.S.-based alternative asset manager and distressed debt investor Oaktree agreed to a $50 million loan to Blue Sky in exchange for a 30 percent stake in the group. This was followed one month later by an announcement that Blue Sky Alternative Investments would split with its $177 million Blue Sky Alternative Access Fund (BAF).

It was believed that the split with BAF would streamline Blue Sky’s structure prior to a vote that will pave the way for Oaktree to one day convert its loan into equity, reported AFR, and the funds from the loan were to be used for co-investments and to provide Blue Sky with general working capital.

Under the terms of the facility, Blue Sky was required to maintain a minimum cash balance, minimum cash recurring EBITDA, minimum net tangible assets, and a minimum annual capex. However, in February the firm posted half-year results showing a $26 million loss, and as of March 31 was in talks with Oaktree about restructuring or adjusting the covenant.

The separation of Blue Sky from BAF followed upon a horrible year for Blue Sky, which saw its share price fall by 90 percent after Glaucus, a U.S.-based short seller, accused the manager of exaggerating the value of its assets under management at $4 billion, and over-charging its investors.

“There are a large number of factual inaccuracies throughout, including the assertions raised in relation to how Blue Sky calculates and reports its fee-earning assets under management, its investment performance and its fees,” Blue Sky said in a statement at the time.

Eventually Blue Sky conceded, adjusting the value of its fee-earning assets under management from $4.25-$4.75 billion to $4-$4.25 billion, and its net profit after tax guidance from $34-$36 million to $20-$25 million. This retrenching also resulted in managing director Robert Shand, Chairman John Kain, and CFO Michael Whyte leaving the company.

 

– Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.